Making A Plan

In the mid-’90s, when Dr. White’s son, Brad, was still a part of the practice, he and his wife, Ann, incorporated the business and began a process of distributing business stock to Brad and Christine.

“After a period of years, we would have transitioned the practice to them, without a great deal of money being exchanged,” he says. “It would have worked out very well, had it been the life Brad had wanted.”

Dr. White utilized the assistance of an accountant to begin his succession plan.

“We wanted to be incorporated and we used the help of an accountant and a lawyer,” he says. “We set up the stock and I became ‘president’ of the company.”

Each year, the Whites transferred a certain percentage of stock to Brad and Christine. In addition, life and disability insurance policies were established.

“They were set up with Brad as the beneficiary, so that he would be able to have full ownership of the practice if something happened to me, without any out-of-pocket expenses,” he says.

In addition, Dr. White says he ensured the practice had been evaluated for the value of inventory, equipment and client numbers. Even if you’re not ready to pass on your business, he says, this process can be beneficial.

“Things change over time, and it’s nice to know what you have, even if you’re not ready to walk out the door.”

Dr. Spragg recommends doing your research before deciding on a firm to handle your plan.

“You have to ask a lot of questions and find a good, reputable trust outfit,” he says. “You must be able to rely on and put full faith in whoever you choose.”

Dr. Spragg’s father, Robert, established a trust for the business in 1998 with a local trust attorney in Springfield, Mo.

He says developing a plan does take some investment.

“There is some cost to it,” he says. “But it’s nothing like the inheritance tax and federal tax would be.”

The Spraggs’ practice grew rapidly in the 1990s and 2000s, which could have led to some consequences with the inheritance, Dr. Spragg says.

“My dad passed away in 2006 and the ownership of the property went to my mother and her trust,” he says. “Because of the exclusion amount on federal inheritance tax, we leased the practice from my dad until he passed away. And when my mother passed away in 2010, it was divided equally between my brother and me.”

The Spraggs were lucky to have inherited the practice in 2010, as this was the year of the repeal of the federal income tax, Dr. Spragg says. However, times have changed, making it imperative for practitioners to consider the consequences.

In 2012, the exclusion for federal inheritance tax is $5.12 million. However, according to current law, that will change to $1 million next year.

Now more than ever, Dr. Spragg says, a succession plan is critical for any practice.

“My dad was an astute businessman,” he says. “It’s a good idea to develop a succession plan. Everyone seems to put it off until the last minute, but it’s something that needs to be done—especially in these uncertain times. The government will try to grab revenue any way they can.